Questions, Answers Regarding Enron

Published 8:00 pm, Thursday, January 10, 2002

The Justice Department is conducting a criminal investigation of Enron Corp., the energy-trading giant whose swift descent into bankruptcy has raised numerous questions.

What happened to the company, which is closely tied to President Bush and other administration officials, and what are the investigations focusing on? Some questions and answers:

Q: What happened to Enron?

A: The Houston-based company, formed in 1985, grew into the nation's seventh-biggest company in revenue by buying electricity from generators and selling it to consumers. It was admired on Wall Street as a technological innovator. But it used complex partnerships to keep some $500 million in debt off its books and mask its financial problems so it could continue to get cash and credit to run its trading business.

Enron officials have acknowledged that the company has overstated its profits by more than $580 million since 1997.

In a six-week downward spiral last fall, Enron disclosed a stunning $638 million third-quarter loss, the Securities and Exchange Commission opened an investigation into the partnerships and the company's main rival backed out of an $8.4 billion merger deal. Enron filed for protection from creditors on Dec. 2 in the biggest corporate bankruptcy in U.S. history. Its stock, worth more than $80 about a year ago, has tumbled to less than a dollar a share.

Enron's collapse left investors burned and thousands of employees out of work with lost retirement savings.

Q: Why is the Justice Department investigating?

A: Prosecutors are probably looking at whether fraud was involved in the reliance on off-balance-sheet partnerships and whether Enron defrauded investors by concealing information about its finances.

Q: What about other federal agencies and Congress?

A: Four congressional committees are investigating. In one inquiry, Senate investigators are issuing 51 subpoenas for documents from Enron's current and former directors and senior managers and from its auditing firm, Arthur Andersen LLP. The auditing firm said Thursday that a "significant but undetermined" number of documents related to the company had been destroyed.

Also, the Labor Department is examining the way Enron handled its employees' retirement benefit plans. On Thursday, Bush ordered his economic team to review pension rules that could put other companies' workers and retirees at risk.

Q: What happened to the Enron employees?

A: Enron, which had 20,000 employees, barred them from selling Enron shares from their retirement accounts last fall as the stock price plunged, saying the accounts were being switched to a new plan administrator. Many longtime employees, including those who worked for energy and utility companies that Enron acquired, had their life savings wiped out.

Testifying at a Senate hearing last month, several employees disputed a company assertion that they were locked out of their Enron-heavy 401(k) accounts for 10 business days, saying it was much longer.

Q: Are there any protections under law for those employees?

A: Apparently not, since pension benefit protections under the federal Employee Retirement Income and Security Act do not apply to 401(k) retirement investment plans.

Many Enron employees and retirees have joined in lawsuits against current and former company executives and directors and against auditor Andersen.

Q: What about the company executives and directors? Did they also lose money from their Enron stock?

A: Top Enron executives cashed out more than $1 billion in company stock when it was near its peak, lawmakers have noted. In addition, nearly 600 employees deemed critical to Enron's operations received more than $100 million in bonuses in November.

A: The White House disclosed Thursday that Enron Chairman Kenneth L. Lay telephoned Treasury Secretary Paul O'Neill last fall "to advise him about his concern about the obligations of Enron and whether they would be able to meet those obligations." Lay also told O'Neill that Enron "was heading to bankruptcy."

In a separate phone call to Commerce Secretary Don Evans, Lay similarly worried that the company might have to default on its obligations "and he was worried about its impact on the energy sector."

Q: Where did Enron's political clout come from?

A: In its heyday, the company lavished contributions on politicians. Enron and its employees have been the single biggest group of contributors to Bush's campaigns. The company's headquarters in downtown Houston was a new $200 million, 40-story glass tower, and it agreed in 1999 to spend $100 million over 30 years to put its name on Houston's major league ballpark. Now a share of Enron stock costs a lot less than a $4 hot dog at Enron Field.